Does virtue signalling in advertising impress you or depress you? It’s time to take a look at ESG.

Sep 6

Virtue signalling by businesses is nothing new. Lots of people will remember how Gillette misrepresented masculinity and offended their customers to the tune of 8 billion USD. However it seems that more and more these days businesses appear to be going to greater extremes to signal their virtue. An example of this was trans influencer Dylan Mulvaney who on the first of April this year become the face of the beer Bud Light. This marked a dramatic change from Bud Light’s previous advertising (e.g. the party animal Spuds McKenzie) and despite the Mulvaney campaign amounting to only one video on Instagram, the response was a 17% fall in sales of Bud Light by mid April, a 23% drop in May, costing Anheuser-Busch an estimated 27 billion USD. In the following months, executives at the company took leaves of absence, and hundreds of employees were laid off, including in breweries and warehouses. A spokesman said "We never intended to be part of a discussion that divides people. We are in the business of bringing people together over a beer".

A spokesman [for Bud Light] said "We never intended to be part of a discussion that divides people. We are in the business of bringing people together over a beer".

What’s interesting about this story is that it might not simply be another example of ill-advised virtue signalling backfiring: it has been suggested the decision to employ Mulvaney to sell Bud Light was motivated by the desire to increase something called an ESG rating.

What is an ESG rating? ESG ratings are based on how good a business looks in relation to Environmental issues (e.g. reducing CO2 emissions), Social issues (e.g. gender equality and diversity) and Governance of their business (e.g. how many female CEOs they have).

So why are so many businesses prepared to risk losing their customers for an ESG rating? The answer relates to investors. Traditionally, if you want to make an investment in a company, you will want to know how financially sound the company is, but today’s ESG is more about how ethical a company is. ‘Ethical investing’ – where investors avoid investing in businesses related to arms dealing or tobacco manufacturing - has been around for years, but ESG takes this further and “focuses more on subjective, moral judgements”. You could call ESG investing hyper-ethical investing.

In general we don’t know for sure when a business is virtue signalling to increase their ESG rating possibly because organisations tend to play their ESG cards close to their chests and don’t appreciate criticism of their ESG activities. However anything a business does to show support for ESG issues, such as the reducing carbon footprints or supporting marginalised groups, will potentially count towards their ESG rating. So when a company takes you by surprise with a campaign that’s a bit too eagerly hyper-ethical, it might be a desperate attempt to increase their ESG score.

Women’s football provides two good examples: EE mobile’s campaign last year was about the abuse of women online, but it seemed to many people to be as much about putting the boot in on men as it was about protecting women. And then there was Paddy Power’s campaign this year that lampooned men who don’t like women’s football. This was all very edgy and amusing, but arguably strayed offside by showing a group of male fans – all of them white – being ushered into something called the ‘Gammon Centre’. When you know that ‘gammon’ is slang for white men - because of the colour of pork – the advert looks more dubious than humorous.

We presume that companies are free – within reason - to run their business how they please, so why would they risk losing customers for the sake of a potentially backfiring ESG campaign? The roots of hyper-ethical investment go back decades, and the United Nations (UN) has reflected similar values since the launch of their Principles of Responsible Investment in 2006. The UN’s Sustainable Development Goals (SDGs), map neatly onto ESG goals, and indeed “ESG provides a framework for corporations to achieve their sustainability goals” through public and private investment. How much investment? In 2018 the UN estimated that “Between USD 3.3-4.5 trillion per year needs to be mobilized if we hope to achieve the 2030 Agenda for Sustainable Development.”

“hyper-ethical campaigns can backfire, alienating customers, impacting the company financially, with collateral damage to investors and employees. Stress might potentially be caused to customers or employees who feel insulted, gaslit, or confused by ESG messaging.”

Let’s look at some similarities between ESG and the UN’s Sustainable Development Goals (SDGs) (see the graph here for more detail). Sustainable Development Goal number 5 is about gender, which is relevant to the ‘Social’ part of ESG. SDG 5 includes the aims (5.2) to “End all forms of violence against all women and girls” and to (5.B) establish enhanced “information and communications technology, to promote the empowerment of women”. These are perfectly valid goals, but the problem is that the UN has a poor track record of recognising that men often need a helping hand too. For example, in relation to domestic violence, around a third of victims of domestic violence are male victims of female violence. The UN also already uses IT to promote the empowerment of women, but this tends to be done in a way that is blind to potential collateral damage to men and boys. An example is shown in the screenshot below where UN Women is calling for gender equality, apparently oblivious to the irony of (a) the inequality of there being no equivalent UN Men branch of the UN, and (b) implying that ‘toxic masculinity’ – a stigmatising term – is the cause of violence to women, rather than recognising the much more likely causes which in fact are unrelated to masculinity.

***Image: Tweet from UN Women, and response from John Barry***

It’s not difficult to find ESG marketing playing up the idea of “ESG risks”, as if hyper-ethical companies are free of risks, and low-ESG businesses are a risky investment that deserve to be on an exclusion list. But there are risks that advocates of ESG discuss less. As we have seen, hyper-ethical campaigns can backfire, alienating customers, impacting the company financially, with collateral damage to investors and employees. Stress might potentially be caused to customers or employees who feel insulted, gaslit, or confused by ESG messaging. And what of the executives of the businesses themselves; do they fully support ESG activities, or do they feel like the participants in Milgram’s obedience research, that they must follow orders, or like the participants in Asch’s research on conformity, where they go along with an idea even if it doesn’t make sense to them? Are male CEOs perfectly happy to vote for more female CEOs, like the proverbial turkeys voting for Christmas? What of the cognitive dissonance of the employees, who might not agree with the image their company is suddenly promoting, an image which may even conflict with their own values or beliefs. Anyone who doesn’t agree with ESG values but feel they have to comply with them anyway, may well feel the discomfort of the direction of their lives slipping out of their control.

Despite these questions, and despite questions in the US about the investment of public funds in ESG, potential problems related to ESG seldom reach the public consciousness. A rare exception is the recent revelation that banks can close your bank account if they decide you are not politically correct enough. Parallels between this and the social credit system currently imposed on the people of China have not gone unnoticed.

“businesses can morally absolve themselves of all sorts of sins, such as Paddy Power which turns a profit from promoting gambling but redeems itself by laughing at ‘gammons’.”

Some critics of ESG point out that we don’t even know really what ESG ratings actually mean. For a start, there isn’t an industry standardised metric to calculate ESG ratings, which makes it difficult for an investor to know whether a given business is – in hyper-ethical terms – healthy or sub-prime. On top of that, it has been found that companies with good ESG scores pollute as much as those with low scores. Some companies are accused of “greenwashing” themselves, so that they can enjoy an impressive ESG score while carrying on with practices that aren’t particularly green. Shell has an equal number of male and female directors which boosts their ESG admirably, but one might ask how high an oil company can genuinely be rated on the E part of ESG. Toby Young wrote that “Getting a gold star from groups claiming to represent oppressed minorities also ratchets up your Environmental, Social and Governance score, one reason ExxonMobil has more ESG points than Tesla.” Nonetheless businesses can morally absolve themselves of all sorts of sins, such as Paddy Power which turns a profit from promoting gambling but redeems itself by laughing at ‘gammons’.

“Men may especially feel uneasy about ESG activities, and not just because men – or at least straight white men - are unlikely to be the beneficiaries of campaigns relating to gender.”

Men may especially feel uneasy about ESG activities, and not just because men – or at least straight white men - are unlikely to be the beneficiaries of campaigns relating to gender. A YouGov poll in 2021 found 33% of women and 25% of men identify as “being politically correct”, a trend much stronger in 18-24 year olds (45%) than in over 65s (13%). Perhaps surprisingly then, there is little sex difference in making ethical investments, once the greater tendency of men to invest in general is taken into account, suggesting that despite men in general being less inclined to go along with ideas they don’t agree with (are less ‘agreeable’ in the Big Five sense) there is sufficient pressure to invest in ESG to overcome this sex difference. Age makes a difference though: one UK survey found 66% of Generation Z respondents (born between 1997 and 2012) claimed to be interested in ethical investing compared to only between 11 - 15% of all the other age groups.

So what if you are one of the people who doesn’t support the whole ESG package, and think the costs may outweigh the benefits? In the US, objections to the politicisation of investment have led to legal action to stop ESG. This hasn’t happened in the UK as far as I know, where presumably people just vote with their feet when it comes to marketing they don’t like.

Elon Musk, CEO of Telsa and Twitter, wrote: “ESG is a scam. It has been weaponized by phony social justice warriors”. Quite likely a lot of people agree with him; in the US this year, a survey found that only 9% of 1000 respondents thought ESG causes should be the main goal of companies. This attitude might be wise, because according to Professor of Finance, Meir Statman “in the long run, ESG investors are likely to earn lower after-fee returns than non-ESG investors”.

In the end, who doesn’t want a green planet, people treated fairly, and businesses run ethically. Although ESG could potentially be used to achieve good things for everyone, there are various ways in which it falls short. For example, some companies seem prepared to alienate their customers with backfiring campaigns, perhaps calculating that any revenue they lose by loyal customers walking away is replaced by new customers and investors, impressed by the company’s virtue, which means a business might never go broke even if they ‘go woke’.

Everyone is affected by ESG in one way or another, so my opinion is that companies should be much more transparent about their ESG activities, which will help to make ESG a topic more people can have an informed opinion about.

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